September 02, 2016
Understanding The Economics Of Title Insurance
By Alan M. Doran and Rachel D. Jaffe on Law360
Title insurance economics — at both the industry and company levels — are widely questioned, often because title insurance has diametric characteristics compared to other forms of insurance, including basic underwriting theory, the time period covered, loss ratios, the way in which risk is priced, and the overall expense ratio. As a result, the basic economics of the industry differ significantly from more commonly understood forms of insurance.
Title insurance is unlike any other insurance product. It insures against future loss based on prior risk whereas other insurance — such as auto, homeowners and life — insures against future loss based on future risk. In other words, while other forms of insurance guard only against risk that arises after the policy is purchased, title insurance is the inverse: it only covers risks that exist prior to policy inception.